Lack of credit causing logjam

Published on July 17, 2009.

DO: Businesses that provide counter-cyclical diversification may benefit from testing the waters in the current econom-ic environment.
DON'T: Sellers shouldn't assume there isn't a market for their busi-nesses solely because of the state of credit markets.Prospects for any significant media deals during the rest of the year are looking pretty dim, and the outlook for the start of 2010 isn't much better, according to Kathleen Thomas, managing director of media investment bank Berkery, Noyes & Co.
“You may start to see more transactions in [early] 2010, but there isn't going to be any real froth until credit markets start to sort themselves out—and that won't happen until well into next year,” Thomas said. “People may accept valuations that aren't overly attractive, and things will probably start to pick up because of pent-up demand among both buyers and sellers, but you won't see lots of activity in the market until toward the end of the year.”
Sectors that rely on private equity are unlikely to see much M&A activity for the foreseeable future, she added.
“The problem is there's so much debt that has to work its way through the system, so it's going to be a much slower rebound than the last time we went through this,” she said. “The point is there's no leverage.”
Thomas said the media segments that will see smaller transactions this year will be the same ones that have been attractive throughout the economic downturn: marketing services, data and digital products. “There's still an appetite in those areas,” she said, “and the strategic companies have the capital.” —Matthew Schwartz